A U.S. corporation faces an excess limitation with foreign taxes. Which option could help alleviate the issue?

To understand the correct choice, it’s essential to grasp the concept of the excess limitation with foreign taxes. This situation arises when the foreign taxes paid by a U.S. corporation exceed the limit set by the U.S. tax code regarding the foreign tax credit. The foreign tax credit allows a corporation to offset its U.S. tax liability by the amount of taxes paid to foreign governments, up to certain limits based on foreign-source income.

Generating higher rate foreign-source income than the U.S. tax rate directly addresses the issue of the excess limitation. When a corporation earns foreign-source income that is taxed at a higher rate than the U.S. corporate tax rate, it maximizes the amount of foreign taxes that can be used as a credit against U.S. taxes. Because the foreign tax credit is designed to prevent double taxation, having income taxed at a higher foreign rate can help the corporation fully utilize its foreign tax credits, thereby reducing its overall U.S. tax liability.

The other options do not effectively alleviate the limitations imposed by excess foreign taxes. Deducting excess foreign taxes that do not qualify for credit would not solve the problem, as deductions do not offset taxes in the same way credits do, and this would merely shift the tax burden without providing